HK watchdog proposes reform of short selling reporting

Net short selling positions will need to be disclosed in Hong Kong under proposed rule changes, but the financial watchdog denies shorting has been the cause for present turmoil in the Special Administrative Region's markets.

Net short selling positions will need to be disclosed in Hong Kong under proposed rule changes, but the financial watchdog denies shorting has been the cause for present turmoil in the Special Administrative Region’s markets.

Following a May consultation on its short position reporting rules, the Securities and Futures Commission (SFC) has confirmed its recommendation that net short selling positions be disclosed. During the 2008 global financial crisis, the regulator had resisted tightening short selling rules.

Hong Kong’s securities watchdog said the industry had opposed the reporting of short positions on a gross basis and it was therefore proposing a more viable, market-friendly alternative.

“In view of the feedback, requiring the market to report short positions on a net basis would be the more pragmatic course of action to progress the SFC’s goal in enhancing its ability to access data on short positions and monitor short selling activities in the Hong Kong market; and to provide the market with more information about short selling activities, without placing undue burden on the industry,” said Ashley Alder, chief executive of the SFC.

“It is more efficient to ask the market to provide data that they already have or can leverage off from their existing infrastructure than having to re-configure their systems to report something new. Hong Kong already has a very robust short selling regime,” he said.

Earlier this month, Alder insisted short selling was a widely used, legitimate trading and hedging tool.

Hong Kong’s Hang Seng Index has fallen more than 20% year to date. The HSI Volatility index has been above 30 since mid-August and rose to 37.45 on 18 October.

“It is not unusual to see the level of short selling increase significantly in the market environment we have been experiencing in recent months,” he said, adding Hong Kong had one of the most robust short selling regulatory regimes and that the watchdog would not hesitate to take action to deter abusive or manipulative trading.

Subject to the legislative process, the regulator aimed to implement the new requirement by the end of the first quarter of 2012.